NEW YORK - Moody's Investors Service said it has downgraded to Aa2 from Aa1 the city of Madison, Wis.'s outstanding water revenue bonds and has assigned a negative outlook.
Concurrently, Moody's has assigned a Aa2 rating with negative outlook to the system's $49.5 million water utility revenue refunding and improvement bonds, series 2009A and $1.5 million taxable water utility revenue refunding bonds, series 2009B. Post-sale, the Aa2/negative outlook will apply to $78.3 million.
Together the series 2009A and 2009B, which are secured by a pledge of net revenues of the water enterprise system, will refinance the system's remaining maturities on its mortgage revenue bonds series 2001A, series 2002A, series 2003A, and 2006A. Additionally, a small portion, $11 million, will be used for new capital projects including water main replacement and work on a booster station.
The refinancing will legally defease the system's prior bonds which adhere to a 1978 resolution. The refinancing will allow the system to lower its legal debt service and additional bond covenants as well as provide slight restructuring.
The Aa2 rating reflects the system's strong local economy and growing customer base, which includes the state capital and University of Wisconsin-Madison, financial operations that provide solid debt service coverage, legal covenants that provide satisfactory bondholder protection and manageable debt ratio with future borrowing planned.
The assignment of the negative outlook reflects Moody's concern regarding the utility's narrow liquidity, specifically its unrestricted cash position as well as operating reserves that continue to be challenged by a lengthy rate increase application process and declines in water usage.
